For many businesses in Singapore, invoice factoring provides a practical solution to manage cash flow gaps without incurring additional debt. However, not all factoring solutions work the same. There are two main types to consider: recourse and non-recourse factoring.
Businesses with reliable customers often find recourse factoring more suitable, while non-recourse factoring may appeal to those seeking added protection from payment risks. So, how do you know which type of factoring is the best fit for your business?
A business typically uses factoring when delayed customer payments start creating gaps in cash flow, making it harder to manage daily expenses. This often occurs when companies agree to longer payment terms to secure valuable clients, even if it means waiting weeks or months to receive payment.
For newer or smaller businesses, this can leave little room to cover essentials like payroll, inventory, or operating costs. In such situations, businesses turn to factoring to keep operations running smoothly without incurring extra debt or tying up company assets, as traditional loans often require.
This is particularly common in the manufacturing, logistics, and B2B service sectors, where invoices are often high in value and customers may request extended payment periods to afford larger orders or manage significant upfront costs.
Recourse factoring is an arrangement where a business sells its invoices to a factoring company but remains responsible if the customer fails to pay. For example, if an invoice remains unpaid after the agreed-upon period (e.g., 60, 90, or 120 days), the business must repurchase the invoice, ensuring the financier isn’t left with a loss.
Essentially, factoring without recourse means leaving the payment risk with the business.
Non-recourse factoring essentially means that the factoring company assumes the risk if your customer fails to pay. You sell your invoices to them, and they provide you with up to 80% or 90% of the invoice value upfront, as well as handle collecting the remaining balance from customers.
If your customer goes bankrupt, can’t pay, or just defaults, you’re off the hook — the factoring company absorbs the loss. It’s a way to secure your cash flow without worrying about unpaid invoices coming back to you.
Pros: Provides strong risk protection by shielding your business from customer insolvencies and defaults. Since the factoring company absorbs any losses, you can maintain a stable cash flow and focus on growth without the burden of chasing late or unpaid invoices.
Cons: Generally comes with higher fees to offset the financier’s increased risk. Your customers’ creditworthiness is also closely scrutinized, which can limit approval for invoices from higher-risk clients and make the funding process slower compared to recourse factoring.
Choosing between recourse and non-recourse factoring depends on your business’s cash flow needs, risk tolerance, and priorities.
Use the questions below to guide your decision:
If most of your answers to these questions are “yes,” recourse factoring may work best for you.
For non-recourse factoring, ask yourself instead:
If most of these are a “yes,” non-recourse factoring is likely the better option.
That said, even if your answers lean toward one approach, it’s still important to consider your overall business situation, main priorities, and future plans. Evaluating these factors carefully ensures you choose the factoring solution that’s truly suitable for your needs and supports your long-term financial stability and growth.
Moreover, it’s just as important to partner with a reputable recourse or non-recourse invoice factoring company that offers transparent terms, reliable support, and services aligned with your business objectives.
Factoring can give your business the breathing room it needs to manage cash flow gaps and stay focused on growth. However, it’s important to ensure you choose the factoring solution that aligns with your goals and supports your long-term stability. The right choice can help you manage risks effectively, maintain healthy cash flow, and protect your business from potential setbacks.
You can explore Factorglobe’s invoice factoring services to unlock funding solutions tailored to your business needs. We offer non-recourse factoring options for businesses that want added peace of mind, ensuring you’re protected if customers default or face insolvency.
Powered by IFS Capital, Factorglobe delivers a trusted and reliable global factoring solution, giving you the confidence that your financing is backed by decades of experience and financial strength. Whether your customers are local or overseas, we offer flexible factoring solutions to support smooth transactions and timely funding.
Apply now with Factorglobe and get the funding your business needs in as fast as 24 to 48 hours.
